Smart investors are making the most of their newly purchased value add multifamily properties, with good reason
For new investors, building a successful multifamily portfolio may seem like an insurmountable challenge—something that’s especially true now thanks to the recent market upheaval.
As the multifamily market continues to recover, smart investors are turning their attention to value add opportunities. Join us as we explore why, and how to make the most of your asset’s earning potential.
Why investors are choosing to buy value add multifamily
To offset the risk of a slow economy, smart multifamily buyers are coming prepared with a plan to raise the income from their new apartment property. For these buyers, value add multifamily is the ideal choice.
Broadly speaking, key characteristics of a value add investment include one or more of the following:
– High vacancy rate
– Leases below the market rate
– Poor physical condition
– Improper management.
How hard is it to add value?
With some work, value add multifamily properties can offer a generous return on your investment.
How much work? It’s a common multifamily myth that all value add properties require extensive renovations or the addition of amenities to make them profitable. Below, we’ll explore some of the simplest ways to do it.
How to add value to your multifamily property
To add value, you must force appreciation on your value add multifamily asset.
There are numerous ways to force appreciation, but all of them work by increasing the net operating income.
This can be accomplished by:
– Increasing the income of the property
– Decreasing the expenses, or
– A combination of the two.
Ways to increase your income
The most obvious opportunity is to bring your rents up to market. You could also consider implementing pet fees if your property does not already have these in place.
You can also increase your property’s income by improving or modernizing key areas to make your units more attractive to tenants—and therefore capable of commanding a higher rent.
– Updating kitchen appliances (black or stainless steel are our top choices)
– Upgrading to granite countertops
– Replacing/repainting kitchen cabinets
– Improving electrical, HVAC, and heating systems
– Replacing flooring
– Replacing shower heads and faucets
– Improving the property’s curb appeal by updating landscaping, repainting the exterior, and resurfacing the parking areas.
Ways to decrease your expenses
The first thing every buyer should do is conduct an energy and utility audit of their value add multifamily property.
You can also avoid marketing costs by taking steps to reduce tenant turnover. One common way is to offer a renewal incentive. Another key to attracting long-term, quality renters is to ensure you thoroughly qualify them before approving their tenancy.
Want to learn more? Visit the video section of our Resources page and click the “Value Creation” tab.